Ambani battle over gas cries for consistent government policy

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Last Updated: Sun, Aug 30, 2009 08:44 hrs

Mukesh and Anil - seems to be an unending saga on the lines of television soap operas, with the story becoming increasingly complex by the day and the number of characters involved in each episode rising rapidly.

Initially, it was just a row between the companies controlled by the two brothers, with Anil Ambani's Reliance Natural Resources seeking gas supplies at $2.34 per unit from the fields of the Krishna-Godavari basin, off the Andhra Pradesh coast, that were awarded to Mukesh Ambani's Reliance Industries.

It has now expanded to include the petroleum and power ministries, state-run power utility NTPC and various other power and fertiliser companies that urgently need natural gas supplies at a reasonable price.

The basic issue continues to be the conflict over the pricing of gas to be supplied by Reliance Industries to the Dadri power plant owned by the Anil Ambani group. The original pact between the two companies envisaged a price of $2.34 dollars per unit for 17 years, which was also upheld by the Bombay High Court.

But Reliance Industries says that it can only supply the same at $4.20 dollars per unit, claiming this is the price approved by the government. The fight has now gone to the Supreme Court, but the problem is that the government - which had earlier taken a particular view on the pricing - has now altered its stance.

This is evidently because the petroleum ministry failed to hold prior consultations with the power ministry on the subject. And after having argued in favour of continuing with higher prices approved by the government, it discovered that Reliance Industries had also committed to supplying gas at the same lower price to the NTPC.

The government, thus, had to modify its stance to support the public sector company, which has argued that Reliance Industries must fulfill the commitment to the lower gas price, based on an global tender.

Clearly, this is a case of one hand of the government not knowing what the other hand is doing. The petroleum ministry is now in the unenviable position of having to alter its stance before the apex court in order to ensure that the NTPC is given the benefit of a lower price.

This is bound to strengthen the case of the Anil Ambani group, which is similarly seeking that the original contractual obligations made by Reliance Industries should be fulfilled. The fact is the oil ministry seems to have acted in haste without consulting other ministries, which are equally involved in the natural gas sector but as consumers.

While it is rumoured that Petroleum Minister Murli Deora is close to Mukesh Ambani, in this case it was felt his ministry was viewing the legal battle within the larger context of natural gas being a sovereign natural resource.

It had, thus, taken the stance that the government had the authority to decide on pricing issues. Now that the NTPC has also staked claim to natural gas at a cheaper price, it appears as if the petroleum ministry was in a tearing hurry to support the higher price being sought by Reliance Industries. In other words, the suspicion of bias on this critical issue has now reared its ugly head.

To add to the confusion are claims being made by several private producers who naturally feel that their power projects would become uncompetitive if the Anil Ambani group is given natural gas at half the price they are paying. Their claims will become stronger with the government pitching for the NTPC to be supplied gas at the lower rate.

Anil Ambani's company added more fuel to the fire by launching a series of print media advertisements alleging that the government was not acting in the national interest by supporting the proposal for higher natural gas prices from the fields of the Krishna-Godavari basin.

These advertisements did put pressure on the government to ensure that it appears objective and unbiased on the gas pricing controversy. It also led to various ministries involved reaching a consensus before making submissions before the apex court.

Now the government seems to be veering around to support the NTPC's demand for natural gas supplies at a cheaper price, while also insisting on higher rate for other companies. But it is yet to be seen whether this duality of approach would be acceptable to the apex court, particularly since the Bombay High Court had ruled in favour of Reliance Natural Resources.

The issue remains before the courts and so all parties concerned are now waiting for Oct 20 when the Supreme Court will take up the case. But the entire controversy has come at an extremely inconvenient time for the government as it has just launched another round of auctions for oil and gas assets in areas including the Krishna-Godavari basin.

It fears potential investors may be scared away by the prospect of the government interfering over pricing and other issues at a later date when oil and gas are actually discovered and produced by these companies.

There is no doubt that on issues like natural gas, which is a critical component of the country's energy security, the availability and pricing cannot be decided by two warring private companies. The natural gas reserves remain a national resource that need to be properly conserved and utilised for the country's long-term needs.

At the same time, the government needs to have a coherent and consistent policy towards natural gas pricing. But this cannot be done as a knee-jerk reaction to the present turmoil over gas prices. A long-term policy needs to be evolved soon to avoid further confusion for both producers and consumers of this important source of energy in an energy-starved country.

(30-08-09-Sushma Ramachandran is an economic and corporate analyst. She can be reached at sushma.ramachandran@gmail.com)